Question

Here is the income statement for Skysong, Inc.

SKYSONG, INC. Income Statement For the Year Ended December 31, 2022
Sales revenue $404,100
Cost of goods sold 234,000
Gross profit 170,100
Expenses (including $16,700 interest and $26,400 income taxes) 83,500
Net income $ 86,600
Additional information:
1. Common stock outstanding January 1, 2022, was 24,700 shares, and 37,100 shares were outstanding at December 31, 2022.
2. The market price of Skysong stock was $14 in 2022.
3. Cash dividends of $22,900 were paid, $4,900 of which were to preferred stockholders.
Compute the following measures for 2022. (Round all answers to 2 decimal places, e.g. 1.83 or 2.51%)
(a) Earnings per share $enter earnings per share in dollars
(b) Price-earnings ratio enter price-earnings ratio in times times
(c) Payout ratio enter payout ratio in percentages % (d) Times interest earned enter times interest earned times

Answer 1

Earnings per share

= Net income - Preferred dividend

No of common stocks outstanding at the end

= $86,600 - $4,900

37, 100 shares

= $2.20 per share

b. Price-earnings ratio

= Market price per share

Earnings per share

= $14

$2.20

= 6.36

c. Pay-out ratio

= Ordinary dividend paid x 100

Earnings after preferred dividend

= $18,000 x 100

$81,700

= 22.03%

c. Times interest earned

= Earnings before interest and tax

Interest expense

= Net income + Interest expense+ Tax

Interest expense

= $86,600 + $16,700 + $26,400

$16,700

= 7.77 times

Step-by-step explanation:

Earnings per share equals net income minus preferred dividend divided by number of common stocks outstanding at the end of the year.

Price-earnings ratio is market price price per share divided by earnings per share.

Pay-out ratio is ordinary dividend paid divided by earnings after preferred dividend.

Times interest earned is earnings before interest and tax divided by interest expense. Earnings before interest and tax equals net income plus interest expense plus income tax.